Where Now For India’s Solar Revolution?

When I first visited India fifteen years ago, solar panels were rare, their use largely limited to the farsighted NGOs I met with who typically used them for jobs like powering pumps for small rural water cleaning facilities, they certainly posed no competition for coal fired power stations. But even fifteen years ago the terrible pollution caused by motor vehicles, power plants and factories in India was stark, Delhi’s air felt thick with dust and dirt, being outside near major roads quickly resulted in a headache. Fast forward fifteen years and India’s economy and power demands have grown enormously, and its pollution problem is now a public health crisis.

India has seen demand for electricity rise roughly 10% a year over the last decade, driven by fast economic growth and energy intense industrialisation which in turn has made the government look increasingly towards using renewable technology to help meet the country’s requirements. Energy demand is expected to double by 2030, at the same time around 300 million people have limited or no access to electricity.

The falling cost of renewables (particularly solar) in the last five years, the devastating human cost of pollution caused by fossil fuels (over one mllion deaths a year are caused by air pollution in India according to the Health Effects Institute) which is evident to anyone who has visited major Indian cities, these factors along with the need to reduce carbon emissions has made solar and wind power increasingly attractive.

The government has acted through renewable energy targets, currently the ambition is to install 100 GW of solar capacity and 60 GW of wind capacity by 2022 (right now solar capacity is 8 GW). The Renewable Purchase Obligation for solar power now means that project developers building thermal power plants will have to supply 8% of the energy from renewable sources. In 2015 the government also instructed government owned entities like the mighty Indian Railways to add solar and wind capacity to their energy supply mix.

There is little doubt that renewable energy has taken off in India, it is hoped that the country can meet about 25% of its energy projects from renewables by 2030, projects like SB Energy’s project in Andhra Pradesh and Adani Green Energy’s farm in Tamil Nadu show that renewable capacity is being installed at scale. Current tariff levels are also encouraging – an auction in Rajasthan delivered a record low price of Rs 2.44 kWh (US$ per mWh) last year, representing a 40% drop in price over a year and undercutting fossil fuel prices in the process.

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These new projects have help propel India to become the world’s fourth largest renewable energy market, some observers like Tim Buckley a director of the Institute for Energy Economics and Financial Analysis attributed this to the Indian Government’s long term commitment to renewable energy and well considered policy environment, which has created certainty for investors, all these efforts have helped attract foreign investment in renewables worth US$ 1.77 billion over the last three years.

The falling cost of clean energy has also helped prompt plans to cancel new coal fired power stations, which in the current energy market are no longer be viable.

However there are risks in India’s blooming solar scene, low tariffs and tough competition have driven down costs, but this could be to the detriment of some energy company’s long term health. Indian dependence on Chinese solar panels (which account for around half of project costs) have increased which has made the cost of future plants rise. There are also reports that falling tariff levels has resulted in some States waiting for further falls in costs before signing agreements.

In another case 15 solar project developers were asked to reduce the tariff for the project, normal practice straight after an auction where bidders are asked to match the lowest bid, but not a few years later when the development costs have been sunk and energy is about to be supplied. All these factors could result in problems for the industry as it matures (like clean energy ventures failing) and could delay the deployment of clean energy. Doubts have grown and the Lok Sabha’s standing committee on energy recently called the 100 GW target unrealistic and recommended a rethink.

But India must push the rollout of renewable technology, the forecast increase in energy demand cannot be met by fossil fuels without a further devastating impact to public health and threatening India’s Intended Nationally Determined Contribution (INDC) which confirms its aim to reduce greenhouse gas emissions intensity by 20 – 25% by 2020 by increasing the share of renewables in newly installed capacity by up to 40% in 2030. As well as the benefits for the environment, renewable energy can produce much needed jobs across the India, a recent IRENA report indicated that a million new jobs in solar and 180,000 in wind could be generated by 2022 if targets are met.

By reducing dependence on fossil fuels India will also improve its balance of payments position and reduce exposure to geo-political shocks that could disrupt supplies of oil. And above all as a major energy user of the present and future its commitment to renewable technology will be a key plank of the global battle to reduce greenhouse gas emissions.

Merlin Linehan has worked in development finance within Eastern Europe and Asia, and spends much of his time investigating the risks and opportunities that are created from the ongoing expansion of Chinese businesses that invest overseas in emerging markets.

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.